Intellicheck Inc (IDN) 2011 Q4 法說會逐字稿

Greetings and welcome to the Intellicheck Mobilisa fourth-quarter and end-of-year 2011 results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kenna Pope with Intellicheck Mobilisa. Thank you Ms. Pope, you may now begin.

Thank you very much and welcome everyone. Thank you for joining us today for our 2011 fourth-quarter and end-of-year conference call to discuss Intellicheck Mobilisa's results for the fiscal quarter ending December 31, 2011, and to discuss other business developments. In a moment I will call upon our CEO to lead today's call and introduce the other members of the Intellicheck Mobilisa management team who will be participating in today's conference call. Before I do that, I will take a few minutes to read through the forward-looking statements.

Certain statements in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. When used in this conference call, words such as will, believe, expect, anticipate, encourage, and similar expressions as they relate to the Company or its Management as well as assumptions made by and information currently available to the Company's fourth-quarter and fiscal-year 2011 financial results management identify forward looking statements within the meaning of Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on Management's current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of such changes, new information, subsequent events or otherwise. Additional information concerning forward-looking statements is contained under the heading of Risk Factors listed from time to time in the Company's filings with the Securities and Exchange Commission.

With that out of the way, I would now like to introduce Steve Williams, Intellicheck Mobilisa's Chief Executive Officer to preside over today's call.

Thank you, Kenna. Welcome to the Intellicheck Mobilisa Q4 and 2011 results conference call or earnings call. First let me introduce the members of our Board of Directors. First, our chairman, Dr. Nelson Ludlow, next, General Buck Bedard, Miss Bonnie Ludlow, Mr. Mike Malone, Mr. Woody McGee, and Mr. Guy Smith. Our management team that's joined us on the call, myself, Steve Williams, the Chief Executive Officer; Mr. Peter Mundy, you'll hear from shortly, our Chief Financial Officer; Mr. Russ Embry, our Chief Technology Officer; and Miss Bonnie Ludlow, our Senior Vice President. Again, Q4 and 12-month results.

Q4 was our third quarter in a row that we had positive EBITDA. For the year we're approximately break-even for net income, roughly $30,000 down. The 12-month revenue is $12.5 million, up approximately 2%. Our identity systems are up 8%. This is the highest revenue for the company since 1994. Our EBITDA difference is about $1.8 million from a loss last year to a positive this year. Our markets are a little different than the previous year. Our commercial identity systems now represent 46% of our revenue; our government identity systems represent 31%; and our wireless represent 23% of our revenue.

Let's go a little deeper into each of the units within the Company. Our focus in the commercial identity systems remains in credit card issuance, loyalty programs, and loss prevention. Most recently we moved into banking operations and hospitality, and most of you saw our press release for a major international bank which is opening through our enterprise license as well as future hardware sales to that and several other banks. In our government identity system our focus remains on access control, visitor and vendor validation in the federal facilities, specifically beyond the military and the US Mint and focused on additional government agencies. We also moved to state and local, as well. Through the quarter and the year we saw new customers, specifically in the Marine Corps, and recurring customers as we pursue our next authority to operate our ATO and expanding to include server systems and support for total solutions at military installations.

Our wireless group -- our focus is on autonomous Active Sensor Systems, specifically our trademark Wireless Over Water, and multi-use platforms such as our buoy. As we prepare to use that $3 million we received in Q3, we are building and deploying additional buoys and have asked IRG to help us develop the market through media outreach to make more people aware of our solutions and capabilities. The growth initiatives, and if you're following along with the slides, you'll see a picture of a cell phone. That's actually a video shot from our buoy system to a cell phone.

We're trying to grow our sales and marketing efforts. We've added two business development people, one on the west coast and one on the east coast. We have added additional salespeople to support both our commercial and government solutions, and we'll explore distribution models where effectively we'll start to include some of our hardware vendors and other resellers to grow our sales force and capability exponentially. Our focus, moving forward in 2012, is top-line growth. We'll continue to monitor costs and reduce them where it makes sense. With that, I would like to introduce Mr. Pete Mundy, our Chief Financial Officer, and he'll provide our financial overview. Pete?

Thank you, Steve, and a good day to all our guests and listeners. I'd like to discuss some of the financial information that was contained in our press release for the fourth quarter and year ended December 31, 2011 which we put out this morning. For the fourth quarter. Revenues for our fourth quarter, ended December 31, decreased 6% to $2.868 million compared to $3.047 million for the previous year. Identity system revenues decreased 1% to $2.162 million compared to $2.191 million last year. Sales of the identity systems to the government sector increased by 35%, but sales to the commercial sector decreased by 11%.

Wireless R&D revenues decreased 18% to $706,000 from $856,000. Total booked orders were approximately $2.3 million in the fourth quarter of 2011 compared to $1.5 million in 2010, a 53% increase. As of December 31, 2011, our backlog was approximately $2.8 million which is the same as the $2.8 million we had at December 31, 2010. We still continue to maintain high gross profit margins. Our gross profit percentage as a percentage of revenues increased to 67.7% for the three months ended December 31, 2011, compared to 65.7% for the three months ended December 31, 2010. The change in percentage is due to a change in the product mix.

Operating expenses, which consist of selling, general administration, and research and development expenses, decreased 25% to $1.954 million for the thee months ended December 31, 2011, from $2.643 million for the three months ended December 31, 2010. As we mentioned in our previous conference calls this year, at the end of the first quarter we made certain operating cost reductions which totaled approximately $2 million on an annualized basis. We saw the impact of these reductions in our reported results in the second, third, and fourth quarters. A decrease in 2011 expenses includes lower legal fees, a reduction in consulting fees, and an overall reduction in staff. We do not anticipate that these operating cost reductions will impact our expected revenue growth.

Interest income and expense were negligible, and we have not provided a tax provision due to the expected utilization of net operating loss carry forwards. We still have net operating loss carry forwards of approximately $38.6 million. Adjusted EBITDA for the quarter ending December 31, 2011 was positive $284,000 compared to a negative $254,000 in the quarter ending December 31, 2010. Our net loss for the quarter was $14,000 or $0.00 per share for the three months ending December 31, 2011, compared to a net loss of $642,000 or $0.02 per share for the three months ended December 31, 2010.

Now as far as the year-end results, for the year ended December 31, 2011, revenues increased by 2% to $12.484 million from $12.292 million for the year ending December 31, 2010. Identity systems revenues increased 8% to $9.620 million compared to $8.945 million last year. Wireless R&D revenues decreased 14% to $2.864 million from $3.347 million. Our previous funding on the FAN buoy contract expired as of June 30, 2011, and the new funding was not awarded until the middle of September, which was the principal reason for the wireless revenue reduction. Our recurring revenue stream remains strong and represents 27% of total revenues in 2011 compared to 24% in 2010. For 2011, booked orders increased 46% to $12 million as compared to $8.2 million in 2010. Our gross profit percentage remained at 65% in both 2011 and 2010 on a yearly basis.

Total operating expenses decreased 20% at $8.427 million in 2011, compared to $10.541 million in 2010. In 2011, adjusted EBITDA was positive $875,000, compared to negative $939,000 in 2010. We recorded a net loss of $291,000 or $0.01 per share in 2011 compared to a net loss of $2.573 million or $0.10 per share in 2010. When you look at our balance sheet, I'd like to focus on the Company's liquidity and capital resources. As of the end of 2011, the Company had cash and cash equivalents of $1.394 million, working capital of $1.984 million, and total assets of $22.945 million and stockholders equity of $19.755 million. The Company did not utilize any bank financing in 2011.

During 2011 the Company used net cash of $95,000 compared to a net use of cash of $1.520 million in 2010. Cash used in operating activities was $72,000 in 2011 compared to a use of $1.150 million in 2010. The decrease in the 2011 amounts is primarily driven by a lower net loss. We used cash of $50,000 in investing activities in 2011 compared to $275,000 in 2010 due to lower capital expenditures. Cash provided by financing activities was $27,000 compared to a use of $94,000 in 2010. In accordance with the merger agreement, the final payment of $200,000 was made to the former principals of Positive Access Corporation in August 2011, compared to a payment of $400,000 in August 2010. This was offset by a reduction of $79,000 in proceeds from stock option exercises in the current year.

During 2011 the company entered into a two-year revolving credit facility with Silicon Valley Bank. The maximum borrowing under the facility is $2 million, and borrowings under the facility are subject to certain limitations, based upon a percentage of accounts receivable as defined in the agreement and are secured by substantially all of the Company's assets. At December 31, 2011, there were no outstanding borrowings, nor did we have any borrowings during the year. We currently anticipate that our available cash as well as the cash expected from operations and availability under the revolving credit facility will be sufficient to meet our anticipated working capital and capital expenditure requirement for at least the next 12 months.

We currently still have effective a universal shelf registration statement on form S3 with the Securities and Exchange Commissions. Under this shelf registration statement, the Company may offer and sell from time to time in the future in one or more public offerings, its common stock, preferred stock, warrants, and units. The aggregate initial offering price of all securities sold by the Company will not exceed $25 million, and pursuant to SEC rules, the Company may only sell up to 1/3 of the market cap held by nonaffiliate stockholders in any 12-month period. I'll now turn this back over to Steve.

Thank you, Peter. On the slides we've provided, you see a market overview. As of the 6th of March, we were trading at $1.07. And let me recap how the quarter and the year went. It's the best revenue since the inception of the Company. We're not happy, we still have a long, long way to go, but we're on the right track.

We've had a significant change in EBITDA with flat revenue. Revenue did not increase significantly. We had an $1.8 million change in EBITDA. We also took out significant reductions in overhead costs. We've also added sales and marketing folks to grow the revenue and ultimately the top line. With that, I'll turn it back over to the operator, and we're available to answer your questions.

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions) Walter Shenker, MAZ Partners.

Obviously you've done a very good job stabilizing the Company, cutting costs, and getting it to operate at roughly break-even level. As you've stated many times, that's not why you're running the Company to break even. That's probably not why any of us want to own the stock, so you can continue to break even. Can you give us some of the key areas where you believe over the next 12 to 18 months, without making a forecast, there are opportunities to dramatically increase revenues which is really going to be the key to actually making some money in the business.

Absolutely. The first one, in all three divisions, we have opportunities. In the wireless group, the business development people that we've hired are focused on selling the buoy system -- the wireless buoy system. One of the great opportunities we are pursuing currently as a result of media placement by IRG and Homeland Security News. The government contacted us as a result of that. So those business development guys are now pursuing and selling a product that's been several years and several million dollars in the making. It's a stable product that we can sell in the wireless group.

In the commercial group, our focus will be, as I mentioned, increased salespeople, but more exciting, the ability to use our distribution channels. Some of our hardware vendors that already have a channel partner program, in one particular case it has several thousand channel partners. In that model, what we would do is license our software through those distribution channels. The ability to have those 3,000 people effectively grows my salesforce exponentially without much overhead cost because that's a software solution and doesn't really require additional infrastructure.

In the government identity space, as we increase our market presence with the Department of Defense, we will pursue enterprise-type solutions. As well as other government agencies like DHS, like the Treasury, and something they call FIPS 201 and HSPD-12. The business development guy in DC specifically was hired for that reason.

So, in all three business units, you're right. We stabilized costs to the sustainable infrastructure that we have, and we can grow significantly without much investment, if at all.

In each of the areas you would hope that if you're successful we're growing by multiple millions of dollars as opposed to -- I mean 10% to this Company is $1.02 million, it's nothing in revenues.

Walter, you know I'm very conservative on giving guidance for estimates. But obviously, I would agree with you. $1 million growth is not our target.

Okay. We will hopefully see this throughout the year?

Absolutely.

Thanks.

Thank you, Walter.

Sam Bergman, Bayberry Asset Management.

A couple questions. You did say in the press release in 2012 you're going to add additional resources. Should we expect R&D to stay flat and just add a few salespeople, or are both going to go up?

You will see sales go up -- let me clarify a couple of things. Research and development, the way we currently report it, is a little difficult for some people to understand. Research and development for us is actually not a cost center, it's a revenue center. In other words, it's research and development contracts for the government. As a result, it actually generates revenue for us. So, we don't really have large research and development investments.

We have effectively always bid for cost-plus contracts with the government. We would own the intellectual property at the end of those contracts, and then we would go to commercialization. That's what we did with government identity. It's what we're doing with the wireless group. But should you expect to see me continue to add salespeople? Absolutely. Because the only way I'm going to get revenue to go up is to increase my footprint in that space. Is it going to go up significantly? Absolutely not.

If you look at the reference points, such as ACCOR, the hotel. Why wouldn't the available salespeople, that you have in particular in those areas, be able to close on some large sales in a similar industry without adding any resources? Or why hasn't it come it about up to now?

Great question. So it is occurring. It takes about 1 year to 1.5 years for some of those people to, what I would call, mature into the market, know the market, understand the market. So ACCOR, in the hospitality space, is actually the tip of the iceberg. We talked about that for a couple of years as products came in specifically. It took a while to convince people that the effect of efficiencies, and the ROI was there for them.

So now, once you get through that market, it's relatively easy. So we have some capacity. I would say we have underutilized capacity. In other words, salespeople that have to get their numbers up higher. But I'll also add more people because we've targeted about 250 Tier 1 retailers. Those are retailers that are doing more than $1 billion a year. But even if every one of my salespeople took on 20 of those, I still wouldn't get them all. We're going to be much more aggressive on sales and increase our footprint.

Can you tell us, or compare quarter to quarter how many beta sites you have on that particular product such as what you sold to ACCOR.

We don't really release that for competitive reasons. Once you start penetrating the market everybody wants to know. There are thousands of opportunities in hospitality.

You think about every time you go into a hotel, the reason we started this program or this product was because all of us travel in the Company. As a result, the first thing you pull out is your driver's license. So we don't really have what that number could be. We're aggressively working with some of the major property management systems to try and integrate into them. We've completed integration with many of those. Yes, you should expect to see us, to move forward in other hotel chains.

The last question, the government's putting a lot of emphasis on cybersecurity. Do you have any products that address those markets?

We're not really in cybersecurity. One thing we're very good is security. So the system that is specific in a government identity system, we have authority to operate from all military services. We underwent that recently for the Army again. We expect we'll get another accreditation. We know that state very well. It's not been our core, but we haven't really attempted to go after it. We try to focus on the markets [we're best].

Thank you very much.

(Operator Instructions) Ernest Caponegro, a private investor.

Good afternoon, gentlemen. I got to this call late. Maybe I can ask you to recap where you see your major growth coming from. To be perfectly frank with you, for a lot of us on this call it's probably anywhere from 5 to 10 years, we've been invested in the Company. You're saying a lot of great stuff, but you've said a lot of this stuff in the past. What can you say to me today and the rest of the guys on the call, they are going to want us to really believe that you guys are taking it to the next level?

Because we've talked about this so many times before, yet, sales are not growing, to I don't think your expectations or our expectations, because we see the marketplace as in the billions and obviously here we are at $12 million, $13 million annualized. Why should I -- why should anybody else stick around anymore? You got to give us some guidance of where you think this thing can go. Are we a $25 million sales company, or do you have visions of $100 million, $0.5 billion? Is the market that big, or have I been smoking something for the last 12 years?

Well, thanks, Ernie. I won't comment on the last comment. But I will tell you that obviously I've only been doing this, the CEO now, for 9 or 10 months. Obviously with the tutelage of Nelson, we made drastic changes over the last 9 months, actually. We had a lot in Q1 last year, but we almost covered that loss. We had one deal that I'm not going to battle the auditors on that we moved into Q1 of 2012 that would have made this profitable for the entire year. So I don't agree with you that we're not making changes. I don't think --

I didn't say you aren't making changes. I'm saying convince me that the opportunity is bigger than our eyesight here.

Right. So, then the -- let the numbers speak for themselves. We had a $1.8 million EBITDA change with no increased costs on flat revenue. So, we got the infrastructure right. Now, the next thing is to grow the top line. The way you do that is sales and marketing. So that's what we're going do. We don't provide guidance because we if we gave you guidance next quarter, we'd have another discussion of you didn't make guidance. We're going to let the numbers speak for themselves. We'll let the sales team develop what they're doing. Those people that know me and know us, we'll show you.

John Bendall, JBC Partners.

A couple of things. The call today has been dominated, which I wanted to talk about and that's sales. Let's face it, for any growth company -- I don't care how much money you really lose, I care but I don't. I want to see the top line grow. Now, your net loss improved in the quarter. But for a growth company, you need the revenues.

I've been, as you well know, for some time saying, look, I think there's some unnecessary moneys that is spent that could be allocated toward two, three very good marketing people. I don't see it. Now, I hate to keep beating on our public relations people, but, you know, I'm in here because I happen to think the product is necessary and will save your life. You know, getting something in a trade magazine is not particularly or hasn't, as I can see, resulted in any great revenue stream. So I -- when I think of the money that has been spent over the last five years, I think it's hard for you guys -- you're there nine months, but the Board of Directors to justify what we're getting for that.

The other thing is somebody has mentioned, and you have mentioned, we don't give guidance. I'm not sure how you can ever get a research report or anything if you can't give some color to someone who's going write that. They can't say, well, we hope or we're guessing. There's got to be a little bit more of color to this, so someone can get an idea. Now the major bank that you talked about, we have no idea whether that's ones and twos -- a major bank. We don't know what that is.

I understand while you can't give but so much, but I think to not be able to mention the hotel and give us a little bit more to extrapolate on to make a model ourselves. We're just not going to go forward with that attitude. So I got three questions -- revenue growth, where is it going to come? The moneys that are spent. And some color on some of the contracts.

Thank, John. Great questions, and as always, I will be happy to answer those. Revenue growth, I agree with you. We're not where we want to be, and we got to get there. We've increased sales and marketing. I can tell you that everyone, to include myself, my sales team, my marketing people, and my IR firm have very defined quantitative methods that measures them.

I don't agree with you that the money spent specifically in that arena doesn't equate to what we're doing in sales. I can assure you that if for some reason that number was far exceeding what I was generating in sales, it would -- we would change. I absolutely would change, and the IR firm knows that very clearly. However, don't be dismissive of placement in some of the media that I mentioned. It only takes one contract. That's what's exciting about small microcaps. It only takes one contract to change the whole game. And that's what we're talking about.

We're not talking about $100,000 contracts. That's not going to get us anywhere, I agree with you. But we're talking about game-changing contracts. Revenue's got to grow. There's a lot of media placement recently that's been very effective for our buoy contract. We have immediately after the last shareholders' meeting, annual shareholder's meeting, the call in New York, we actually met with the IR firm to talk strategy to address the concerns that you raised. You're right, the Board nor I would be supportive or the Management team would be supportive of spending money needlessly. We obviously aren't going do that. I think that's what our cost cutting did for us this last quarter, and it will continue to do for us.

Let me talk about media. In every single case, I can tell you that my salespeople have scars and wounds from me pounding on them to try and use the name of the new client. In every case. In fact, I even will incentivize a new client by reducing costs to get the user name. I understand the value of that. In almost every case with very few exceptions does a Tier 1 person do that. They don't want to do it for stock or whatever. I, however, could not put out a press release saying a major international bank that represented two [Cs]. This one clearly represents 20,000 [feet]; otherwise it wouldn't be a major bank. When we put out that information, it's not because we're not trying to use their name. We absolutely would like to use their name. Unfortunately, in a lot of cases, they won't allow us.

However, we continue to ask that question. If we make additional sales or we have luck like, happened in LL Bean, I'll give you an example. LL Bean wouldn't allow us to use their name in the beginning. However, once they saw the results and the ROI that we provided for them and their returns on their revenues, they then did do a press release. So we never, ever allow that to go away. We never stop asking and we understand the importance of trying to do that.

So that's the reason. That's the reason clarity. Unfortunately for the same reason that Ernie's question on guidance, we just don't provide it. A single contract for $2 million or a $10 million or $13 million contract, that shows 100% growth. You know, we're much more conservative than that. We're never going to release that kind of information. We always try to provide more than is out there. Thank you, John, for your questions.

Thank you. I'll turn the floor back to Steve Williams for closing comment.

Thank you, operator. We would like to thank everyone for joining us today. Feel free to contact the Company with any questions you have. Have a great rest of your day.